July 5, 2012 / 11:57 PM / 7 years ago

UPDATE 1-Argentina gives banks 6 months to grant new loans

* Central bank orders big banks to lend to companies

* Interest rates seen well below inflation

* Banks must grant new loans before Dec. 31

* Banco Macro, Galicia shares take a dive

By Hilary Burke

BUENOS AIRES, July 5 (Reuters) - Argentine banks must offer to lend companies 15 billion pesos ($3.3 billion) by the end of the year at rates well below private inflation estimates, a central bank statement said on Thursday.

The statement came after President Cristina Fernandez announced on Wednesday that banks would have to lend cheaply to businesses to help bolster a flagging economy.

Latin America’s No. 3 economy grew a sizzling 8.9 percent in 2011 but growth is slowing sharply due to sluggish global conditions, slackening demand from top trade partner Brazil and the impact of surging costs at home.

Economic activity screeched to a virtual halt in April while industrial production sank 4.6 percent year-on-year in May.

The central bank said a total of 31 banks will have to put 5 percent of their total private deposits, calculated as of June, into the new credit lines. Half of the loans must go to small- and medium-sized businesses.

The loans should finance capital goods purchases and new construction or expansion projects aimed at increasing the production of goods and services, the central bank said.

The loans must be disbursed by Dec. 31, although additional credit could be granted for more complex projects through to June 30, 2013, the central bank said.

“This measure ... is part of government policies oriented toward safeguarding production and Argentine jobs in light of the current international context, which has shown an increase in global risk and uncertainty,” the statement said.

The loans should carry a maximum interest rate of 15 percent, or the Badlar reference rate from June, plus 400 basis points, if that is lower. The minimum loan period is three years.

Inflation is running at about 25 percent per year, according to private estimates that more than double the government’s discredited consumer price statistics.

Private banks in Argentina loaned companies about 35.5 billion pesos in 2011, according to central bank data. Only 7 percent of that went to smaller companies.

Central bank officials estimate that the 31 banks obligated to participate in the new plan have a total lending capacity that has not yet been harnessed of 95 billion pesos.

BANK SHARES TANK

The MerVal index of leading stocks closed down 1.87 percent on Thursday, dragged lower by banking shares, which fell due to concerns that financial institutions could lose money on these cheap loans.

Shares in Banco Macro ended 7.31 percent lower at 8.24 pesos per share, while leading financial group Grupo Financiero Galicia, which owns Banco Galicia , shed 5.46 percent to end at 2.94 pesos per share.

However, some market analysts were skeptical the new plan would result in that many fresh loans as the economy cools quickly and investments by companies look less profitable.

Lending levels in Argentina are among the lowest in Latin America. Many smaller companies do not qualify for state-subsidized bank loans because of tough requirements, and both deposits and loans tend to be short-term due to inflation and the country’s volatile history.

Fernandez’s allies in Congress reformed the central bank’s charter in March to allow the monetary authority to regulate and steer credit flows to target long-term productive investment.

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